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Bilateral Capital Flows: Gravity, Push, and Pull

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  • Rogelio Mercado Jr.

    (South East Asian Central Banks (SEACEN) Research and Training Centre)

Abstract

Using bilateral capital flows data from 10 advanced reporting economies with over 186 bilateral country pairs for 2000 to 2016, this paper provides strong evidence on the significance of gravity factors, including distance and bilateral trade ties, in explaining cross-border financial asset flows. This finding is new to the capital flows literature that consider push and pull factors. In addition, this study offers new evidence of regional contagion as bilateral capital flows decrease more for country pairs with closer geographic proximity (or with less information frictions) than those that are farther apart when global risk aversion rises. These findings have policy implications on the importance of information frictions, bilateral trade ties, and regional cooperation on bilateral financial asset flows.

Suggested Citation

  • Rogelio Mercado Jr., 2018. "Bilateral Capital Flows: Gravity, Push, and Pull," Trinity Economics Papers tep0818, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep0818
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    Cited by:

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    More about this item

    Keywords

    bilateral capital flows; information frictions; bilateral factors;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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